How to Make Your Small Business Profitable in 2016

This is a guest post from Cathy Sexton of The Productivity Experts. I've become a huge fan of the Profit First system that she talks about here, and highly recommend you take advantage of her offer at the end if you're struggling with making or keeping your money.

Did you know there are 28 million small businesses in the U.S. bringing in an average of $3.6 million in revenue annually? Yet the majority are operating at break-even status or barely surviving month-to-month. According to Forbes.com, 543,000 new businesses get started each month, but more shut down than get started and only one-third of those who start up will still be in business at the 10-year mark. If each of these businesses has the potential to bring in $3.6 million in annual revenue (or more!), why do so many small businesses fail? That’s because revenue and profitability are two different things.

Revenue is essential to every business, but the success of a small business goes beyond just revenue dollars. There are two key elements to being in the percentage of small businesses that survive and thrive. The first key is profitability. Profit is what is left of the revenue a business generates after it pays all expenses directly related to the generation of the revenue. Profit allows you to reinvest in your company which extends its longevity. It’s a concrete marker of the success of your hard work.

Cathy Sexton

The second key is Owner’s pay. You’ve heard you should always pay yourself first, right? Well that’s great in theory, but if you don’t implement a process or plan to make it happen it doesn’t work! A large majority of small business owners start out excited, thinking they’ll have control over how much they’ll be able to pay themselves, but the reality is that after paying expenses there’s often nothing left. Sound familiar?

Far too many entrepreneurs fall into the trap of little or no profit and no money to pay themselves, which explains why so many close their doors and never fully realize their dream of entrepreneurial success.

What’s the solution? Well… I found the miracle money method called Profit First (based on the book Profit First by Mike Michalowicz). When I first implemented this system into my own business the results were amazing from day one. My mindset about money shifted and, for the first time in the history of my business, I started making profit and getting owner’s pay every single month.

The Profit First concept uses bank balance accounting. If you check your bank balance online daily or weekly, you’re already using a form of bank balance accounting. But Profit First adds the structure and a process that makes bank balance accounting work for you and your business in a tangible way that promotes financial health.

Here’s a brief run down on how it works…

Step one is to have 5 designated bank accounts for your business. They are:

Income (deposit) account

Profit (Savings) account

Owner’s Pay account

Tax (Savings) account

Operating Expense (Checking) account.

All deposits go into your Income account. Then weekly, or twice a month, move a percentage of each deposit into the other accounts.

The idea is to set some goal of where you would like each percentage to be: say profit 15%, owner’s pay 50%, etc. Now you’re probably thinking, “I can’t do that! I won’t have enough money to pay my bills/expenses.” -- and you’re probably correct. The idea is to set goals to work towards and start with 1%, 2%, 5%, or whatever you can afford to put away. The goal is to slowly increase your Profit, Owner’s Pay and Tax accounts and start decreasing your operating expenses.

As simple and easy as this seems to set up (and it is that simple), it can be challenging to set those initial percentages and start minimizing your expenditures. That’s why my clients have found it easier having me, a certified, Profit First professional, help them figure out their percentages and make the best decisions in trimming their costs. Having me on call also gives them someone they can be accountable to as they shift their mindset toward sustainable, solid profit and growth.

The exciting part of this whole money-miracle method is watching money grow in all your accounts and knowing there will be money for you to pay your taxes and, more importantly, pay yourself (The #1 employee). My clients have found that when they start focusing on what they do with their money as it comes in and start paying themselves what they’re worth two things happen. First, they reignite the joy and excitement of owning their own company and secondly, as they focus on growing their money, their sales naturally start growing too. How fun is that?

So… start the New Year off right with a system in place and a plan to make 2016 the most profitable year ever for your business!

For more information on Profit First visit TheProductivityExperts.com or call Cathy at 314.267.3969 to schedule a No-Obligation consultation TODAY!

Will Hanke owns Saint Louis’ top independent Internet Marketing firm, Red Canoe Media. In addition to helping some of St Louis’ most recognizable brands with their online marketing strategy, Will also is an Amazon bestselling author, speaker and teacher.